Surging demand from drivers in the richest countries helped power a big rally in crude this year. But many analysts say that surge is ending.

In the US, lower petrol prices led consumers to drive a record three trillion miles (about 4.8 trillion kilometres) in the past 12 months. In June, gas consumption hit an all-time high, 9.7 million barrels a day. And in July, pick-up trucks, SUVs and other gas guzzlers reached a record share of auto sales.

Yet as the northern summer-driving season ends, low fuel ­prices may not be enough to entice consumers to pump in more petrol. More broadly, economic growth isn’t strong enough in the US and Europe to produce the necessary increase in jobs or new manufacturing that would spur large, long-term increases in oil demand.

Most of the world’s oil gets processed into fuel. That makes driving trends and petrol and diesel consumption among the biggest factors for oil prices. A glut of those fuels built up this northern summer, slowing demand for oil and stalling an oil-market rally that had been the biggest since the financial crisis.

Crude rallied into a bull market and above $US50 in recent months but has retreated each time. Many traders, pointing to stockpiles that are holding or even growing, are betting that a glut hasn’t eased enough to keep supporting this year’s rally.

Data last week showed US stockpiles of crude and refined fuels growing to a record. Supplies of crude, petrol and diesel are so high that even record demand hasn’t been enough to balance the market. Global petrol storage has been filled to a near-record level all northern summer, almost 500 million barrels, according to Citigroup.

The trend has forced investors and analysts to tear up predictions that oil prices would rally in the second half of this year. Morgan Stanley sliced its third-quarter forecast to $US45 a barrel, from $US50, saying it had over-estimated demand that is now decelerating in important markets.

Bank of America Merrill Lynch on August 25 said it expected demand growth in countries from the Organisation for Economic Co-operation and Development to shrink by 120,000 barrels a day in 2017. US government forecasters expect that next year’s driving season is unlikely to top this year’s.

Job growth is slowing in the US and Europe. As oil and petrol prices stabilise or have less room to fall drastically, they may not keep drawing people to drive more or to continue buying SUVs, trucks and larger cars that use more fuel.

“We have likely already experienced the modest uptick in demand we would expect,” said Rob Haworth, senior investment strategist at US Bank Wealth Management.

Many analysts expect European consumers to revert to long-term trends of driving less and using cars that burn less fuel. The International Energy Agency says Europe’s oil-demand growth is likely to be flat for the rest of the year after several quarters of growth near 2 per cent.

Demand in developed economies in Asia is on a similar path and may even decline from last year, IEA says.

To really boost demand, businesses and governments would have to make big investments in new factories or roads, but they are not doing that, says James Koutoulas, chief executive at Typhon Capital Management. He has been betting oil prices will keep retreating at $US50 because demand can’t catch up with supply.

“We’ve got no infrastructure spending, no help from (politicians) in any country,” said Mr Koutoulas. “You have no demand stimulus.”

European countries and Japan have highly fuel-efficient fleets, slowly growing economies and populations that are barely growing or, in Japan’s case, outright shrinking.

With little economic growth and increasingly deindustrialised economies, there is little scope for industrial demand to increase ­either.

US job growth is also slowing. Over the past year, 2.4 million jobs were created, down from a 3.1 million pace in early 2015. Population and job growth tend to drive motor-fuel consumption.

Data from the US Labour Department, for example, show the average consumer without a job spends $US700 a year on petrol, compared with $US1370 for those with earnings.

Oil markets will have to go back to relying on emerging markets for demand, said Francisco Blanch, head of commodity research at Bank of America Merrill Lynch.

Extracted from The Australian.